EEOC Initiative Focuses on Pre-Hire Selection and Testing Criteria

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If you currently conduct criminal background checks or obtain applicants’ credit histories before making hiring decisions, be cautious.

As part of its new E-RACE (Eradicating Racism and Colorism from Employment) Initiative, the Equal Employment Opportunity Commission is in the process of identifying “issues, criteria and barriers” that contribute to race and color discrimination in the workplace. The EEOC has determined that employers who decide not to hire applicants based on their criminal history or credit history may be adversely impacting black or Hispanic employees (or other minority populations) because these groups are arrested at a disproportionately higher rate and denied credit advantages as compared with the rest of the population.

As part of this enforcement initiative, the EEOC has been filing nationwide pattern and practice lawsuits against employers and challenging their hiring and screening procedures. In connection with these agency actions, we have seen an increase in onerous EEOC discovery requests seeking nationwide information from employers regarding their background screening procedures, presumably because the EEOC is looking to bolster its argument that such employer practices have an adverse impact on minority applicants.

For example, in EEOC v. Freeman (complaint filed on Sept. 30, 2009), the EEOC filed a complaint alleging that the defendant’s use of credit history and criminal justice history information had a significant disparate impact on black applicants, while the company’s use of criminal history information had an adverse impact on Hispanic and male applicants. Similarly, in EEOC v. Peoplemark (complaint filed on Sept. 29, 2008), the EEOC filed a complaint on behalf of black applicants alleging that Peoplemark’s policy denying employment to any person with a criminal record has a disparate impact on black applicants.

Given the EEOC’s increased scrutiny of hiring policies, employers in the retail industry should make sure that hiring decisions based on background checks are “job-related for the position in question and consistent with business necessity.” In the Third Circuit’s Lanning v. SEPTA decision, the court ruled that the term “business necessity” is separate and distinct from the term “job-related,” and so you must show not only that the pre-employment inquiry or test is “job-related,” but also that the chosen policy is predictive of successful job performance. The Lanning court held that “if an employer can demonstrate that its discriminatory [policy] reflects the minimum qualifications necessary for successful job performance, it will be able to continue to use it. If not, the employer must abandon it.”

Many state agencies have jumped on the bandwagon, and they, too, are processing and investigating charges of discrimination if employers cannot show “job relatedness” when they make decisions based on criminal convictions. This is most notably occurring in the New York Civil Rights Division, and in Wisconsin at the Department of Workforce Development. Other states that are requiring job relatedness when employers rely on criminal history records during the hiring process include: Hawaii, Pennsylvania, Kansas and Missouri.

Similarly, several states have passed laws restricting employers from using credit information during the hiring process unless it directly bears upon the job at issue. In Washington, for example, employers may only secure credit information for employment decisions if such information is substantially related to the job. Similarly, in Hawaii, employers can only conduct a credit check if such information has a direct relationship to a “bona fide occupational qualification,” and a conditional job offer has been made to the employee. In addition, several more states—such as Connecticut, Missouri, Ohio, New Jersey, Michigan and Wisconsin—Are considering passing similar laws.

U.S. Representative Steve Cohen of Tennessee has also sponsored the “Equal Employment For All Act,” a nationwide bill that proposes to amend the Fair Credit Reporting Act to ban employers from using credit reports entirely in making hiring or promotion decisions.

Given the myriad of state law requirements, the pending federal law and the EEOC’s renewed interest in pre-employment inquiries, it is important that retailers review their pre-employment screening processes to ensure that they are seeking credit and criminal information from applicants in appropriate circumstances and using that information in a lawful manner. Finally, retailers should consult outside counsel to determine the applicable laws and regulations in the jurisdictions in which they operate. If the first set of eyes to review the company’s hiring policies and practices are those of the EEOC investigator, it may be too late.

Pamela Devata and Lynn Kappelman are labor attorneys at the full-service, national law firm Seyfarth Shaw LLP, New York City.